They Might Be Giants, but Microsoft, Qualcomm Shrink in Funds

Everybody knows growth-fund managers have loved large-cap tech and telecom stocks in recent years, but which are their favorites these days?

Ask 10 managers and you'll probably get 10 different answers. But you don't have to ask because fund managers tend to put your money where their mouths are. Using the most recent portfolio data from Morningstar, we've looked at the percentage of large-cap growth funds that own each of the techy Nasdaq 100 Index's top-10 holdings as of July 31, compared with holdings from the start of the year.

The verdict: They still like biggies such as Cisco(CSCO Quote - Cramer on CSCO - Stock Picks), Intel(INTC Quote - Cramer on INTC - Stock Picks) and Sun Microsystems(SUNW Quote - Cramer on SUNW - Stock Picks), with a building appetite for JDS Uniphase(JDSU Quote - Cramer on JDSU - Stock Picks) and Veritas Software(VRTS Quote - Cramer on VRTS - Stock Picks). On the flip side, some funds dumped their stake in Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) and Qualcomm(QCOM Quote - Cramer on QCOM - Stock Picks), the only two stocks on the list that are sharply lower on the year. For fund investors, this is a good way to see where your money might be going. For stock investors, it's a glimpse at where the pros are placing their bets.

Big Moves Here are the top 10 holdings of the Nasdaq 100, ranked by the percentage of large-cap growth funds that own them. On the rise are JDS Uniphase and Oracle, while some managers have sold Microsoft and Qualcomm stakes.
Stock	July 31	Jan. 1	Change
Cisco Systems	85%	85%	0%
Microsoft	80	88	-8
Intel	75	71	+4
Sun Microsystems	66	52	+14
Oracle	61	31	+30
JDS Uniphase	50	23	+27
Veritas Software	46	18	+28
Nextel Communications	36	20	+16
Siebel Systems	24	10	+14
Qualcomm	20	28	-8
Source: Morningstar.

As you can see from the table above, growth managers who focus on big-cap stocks are still big-time believers in household names that have rung up solid returns year-to-date: networking giant Cisco (17.7%), semiconductor titan Intel (65.5%), server shop Sun (49%) and hot-shot software concern Oracle (44.9%).

While the portfolio information fund companies share is often a bit dated, some significant moves are discernable. Maybe the most intriguing nugget is how many funds have added fiber optic networker JDS Uniphase, as well as software shops Veritas and Siebel Systems(SEBL Quote - Cramer on SEBL - Stock Picks) -- all up for the year -- to their portfolios recently. The percentage of growth funds holding shares in these companies has more than doubled in the first seven months of this year, according to Morningstar.

Oracle has also found a wider fan base on Wall Street lately, too. The latest portfolio data at the start of the year showed 31% of large-cap growth funds holding the software shop's shares, but now that number is up to 61%.

And it looks like some of the money growth-fund managers are plowing into these climbers might be coming from sales of Microsoft and Qualcomm shares.

Uncertainty over the outcome of Microsoft's scrum with the Justice Department has sent the stock down more than 39% for the year as of Wednesday's close. Since the start of the year, the percentage of large-cap growth funds holding Mister Softee's shares is a still-high 80%, but down from 88%. Recent regulatory filings from leading growth shops Janus and Fidelity indicate that many of their managers were selling Microsoft shares in the second quarter.

The struggling giant might actually be lower on these managers' lists than those figures imply. Because the stock was formerly a large, core holding for so many growth funds, managers may not be able to liquidate their whole positions quickly. One observer wonders if more haven't sold simply because the stock is still a big part of the S&P 500, a benchmark for many funds, and not holding some shares translates to a huge bet against the highly regarded company and its college-dropout leader.

"I was surprised more funds haven't given up on Microsoft yet. I guess they feel like it's too big a bet to not own it," says Morningstar senior analyst Scott Cooley.

As for wireless communications dynamo Qualcomm, growth managers piled into the stock last year, when it posted a gaudy 2,619% return. At the start of last year, 34 growth funds owned the stock and by the end some 290 had a stake in the highflier, according to Morningstar.

But concerns about the stock's high valuation and the near-term sustainability of the company's outsize earnings growth have sent the stock down more than 65% so far this year. And many of the growth-fund managers who fell in love in 1999 have called the whole thing off.

"Looks like Qualcomm is yesterday's hero and today's bad penny," says Cooley.

For a bit more perspective, look over tech-fund managers' whims. After all, they're tech specialists who typically have no where else to put their money, unlike large-cap growth-fund managers who can typically invest in any industry sector. By and large their moves have been similar, if a bit more pronounced.

Tech Movements Here's the same list, ranked by the percentage of tech funds that own shares.
Stock	July 31	Jan. 1	Change
Cisco Systems	69%	77%	-8%
Intel	57	66	-9
JDS Uniphase	56	39	+17
Microsoft	55	75	-20
Sun Microsystems	53	46	+7
Oracle	52	45	+7
Veritas Software	48	41	+7
Siebel Systems	30	21	+9
Nextel Communications	20	11	+9
Qualcomm	18	30	-12
Source: Morningstar.

Like large-cap growth-fund managers, tech managers are putting a lot of faith in Cisco and Intel. That said, the percentage of funds owning both is sliding. Speaking of sliding, it looks like many tech managers see a Microsoft stake as dead money these days. The percentage of tech funds holding the software behemoth's shares has fallen from 75% to 55%.

Tech-fund managers have been a bit quicker to flee Qualcomm, too: About 40% of the tech funds that held shares at the start of the year are now out of the stock.

On the upside, they have ramped up their exposure to JDS Uniphase, Sun, Oracle and Veritas.

It will be interesting to see where these comparisons stand at the end of the year. Whether you're investing in stocks or stock funds, you're probably better off knowing where the pros are headed, and it helps to not have to call them all.